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With the risk appetite of global investors increasing once again, equities in Indian markets are likely to see further consolidation in the ensuing week.
India Meteorological Department's (IMD) recent forecast of normal monsoon also boosted sentiment at Dalal Street, particularly towards consumption-related stocks.
Volatility, particularly during intra-day, is likely to remain high, as traders will rollover their positions in the futures and options segment ahead of settlement of April contracts on Thursday. Besides, with the result season on, stock-specific action is likely to add more uncertainty in the Street.
It was a mixed bag so far as Q4 results are concerned. While some companies such as HCL Technologies and TCS have exceeded street expectations with stellar performance, index heavyweights – Infosys Technologies and Reliance Industries – have fell short of market expectations.
Strong response from FIIs to the initial public offering of gold-financing firm Muthoot Finance indicates global investors have high appetite for risk.
However, the moot question here is how long will the easy money chase the risky assets?
According to Bank of America-Merrill Lynch report, “Equity markets have been helped over past 9 months by the massive liquidity infusion by Central banks starting with the Fed's QE2 and the $200-250 billion infused by Japan this year. While Japan may continue to infuse liquidity one question is what happens when the Fed liquidity infusion ceases with the end of QE2 in June?
“Three points for India: (a) First is that inflation, rising interest rates and earnings downgrades will continue to be critical driver of markets (b) Secondly, the end of QE2 (and a possible equity market correction) may provide an excuse for a correction in Indian markets too (c) Lastly, the good news for India could be if we see global commodity prices correct post-QE2 easing inflation worries on India.
A Morgan Stanley (‘Impact of Oil on Equities') report said: “History shows that if rising oil prices are accompanied by capital flows, Indian equities correlate positively with the oil and vice versa. This is currently in play in the equity markets. Every $10 average rise in oil needs $8 billion inflows to be offset.”
This week, a host of companies, including ICICI Bank, Sesa Goa, Maruti Suzuki, Sterlite Industries, ACC, Ambuja Cements, UltraTech Cement, Wipro, JSW Energy, LIC Housing Finance, Titan Industries, TVS Motor and SAIL, will announce their fourth quarter financial performance of previous fiscal.
“Growth in expenses has now surpassed that of sales, and companies that were able to maintain margins over the past three quarters would now begin to feel the pressure. We think consensus earnings estimates for FY12 could be downgraded if our expectation of a further margin squeeze turns out to be correct. Earnings estimates are highly sensitive to changes in margin assumptions; we estimate that a 50 basis points decline in margins results in about 400 basis points decline in EPS growth estimates. We expect earnings growth to be around 12-15 per cent in FY12 on the assumption that margins may squeeze in the range of 50-100 basis points,” said a recent Macquarie report.
The other important event to look for is initial public offering of the Mr Kishor Biyani-promoted Future Ventures India, which opens for bidding on Monday 25.
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